Although we can slice and dice complex human responses in hundreds of ways (for instance, Who am I? The 16 Basic Desires that Motivate Our Actions and Define Our Personalities ), for the purposes of a stripped-down practical analysis we can group our "default responses" into four basic categories: inertia, fear/panic, casting our lot with a "Big Man"/leader or fatalism/giving up.

Since we cannot sustain the emotionally charged state of fear/panic ("fight or flight") for long, decisions made in this instinctive mode tend to be rash, hasty, impulsive and poorly planned. Thus the key is to recognize this mode and consciously avoid making decisions with long-term consequences while in the grip of this "instant response" survival-mode.

Humans, like our relatives the chimpanzees, are social animals. Like chimps, we are "wired" to form groups and select/follow leaders who reach their high status by offering something back to the community: protection, "potlatch" type sharing of wealth, etc. We will examine this political/social response to crisis in a later section.

But humans also have the capacity to be alone, like our other primate relatives the orangutans. Thus withdrawing from the community has deep roots in human nature and history.

Being creatures of habit—and habits are a survival mechanism, for why change anything when "everything's working"?-- humans prefer the status quo until crisis forces us to change. The underlying state in this inertia/attachment to the status quo is complacency, which acts as a cognitive and emotional "attractor" or trap, as does fatalism/withdrawal.

Complacency and Fatalism

Complacency and fatalism are both seductive "cognitive traps" and emotional "attractors" which we have to avoid if we are to think clearly. Each is an "attractor" because each is highly appealing for several fundamental reasons.

2. History reveals these attractors (complacency and fatalism) were active in previous great declines/collapses, such as the Roman Empire circa 400-576 C.E. (see below)

3. Humans prefer simplistic "answers" to challenges/problems, and a blind faith in the status quo or resignation both fit the bill.

Complacency is best understood as what's expressed in the phrase, "Don't worry, it will sort itself out on its own." In stable "normal" times, this complacency is usually rewarded; various corrective feedback loops within complex systems kick in and problems are met with countermeasures that act to restabilize the system.

But in very dynamic eras, destabilizing factors overwhelm the usual corrective feedback mechanisms, and things do not sort themselves out. Dramatic, even radical action must be taken. In these times, complacency is not a practical or helpful strategy: it is a soothing but dangerous cognitive trap which guarantees the believer will be unprepared for the challenges just ahead.

In the cognitive trap of fatalism, we recognize the risks/dangers of the situation but feel helpless to correct or solve the problems. In this trap, we remove ourselves from action and give up, dooming ourselves to being swept up by whatever passing winds arise.

The goal here is to avoid these traps, analyze the challenges we face clearly, and then plan out a simple but interconnected three-part strategy for not just survival but prosperity and security.

Complacency can take many forms. For instance, a person who has prepared themselves for a doomsday collapse of civilization, i.e. "The end of the world as we know it" (TEOTWAWKI) may well find themselves ill-prepared for an equally probable slow decline in social cohesion and living standards. That is, living conditions in highly developed nations may descend not to a Collapse of Civilization into Chaos but to a Third World level of stable impoverishment.

This highlights the need to ground our analyses and expectations in history—not because it repeats, but because it rhymes. No one can know the future, so we must be cautious about putting all our eggs in one basket/scenario. Prudence suggests always maintaining a skeptical point of view: what if we're wrong? What's our Plan B/alternative strategy?

Fatalism is similarly devious. People who withdraw from society are certainly taking action, but they have surrendered the opportunity to influence the outcome positively: that is fatalism of the first order.

If you're reading this, then you have already advanced beyond the naïve complacency of "don't worry, everything will work itself out" which is mesmerizing large segments of our citizenry. You may well be a member of The Remnant—more on that later.

The Politics of Complacency and Fatalism

In Greek mythology, two sea monsters Scylla and Charybdis forced sailors into an unsavory choice of facing one or the other when navigating the Strait of Messina. In modern vernacular, we might say the sailors were "between a rock and a hard place."

Our "default mode" responses were selected for a hunting-gathering lifestyle; humanity has pursued agriculture for perhaps 5% of its long history as homo sapiens sapiens and dealt with advanced technology for perhaps 1% of its history.

The consequences of these unconstructive responses can be seen in the advanced civilizations (Mayans, Rome, etc.) that collapsed despite a wealth of experience and knowledge.

As a result, even as we work at devising rational, long-range solutions, we will be fending off the "monsters" of complacency and fatalism every inch of the way.

Analyzing challenges and then plotting out practical solutions is arduous, precarious work, as the answers are rarely clear and painful trial-and-error attempts are often the only way forward. Rather than engage in this difficult process, many find doing nothing (complacency) or withdrawing (fatalism) much less risky and demanding. This inaction feeds on itself, setting up a point-of-no-return that could have been avoided by bold action when the problems were first visible.

Humans cannot remain in the high-stress "fight or flight" status for long; we seek a resolution or equilibrium, both intellectual and social. Thus the most constructive approach is to assess the challenges in a clear-eyed fashion, hashing out the strengths and weaknesses of each major strategy. Then make a decision, and commit to giving the chosen strategy the time, resources and unity it needs to succeed—or fail conclusively, perhaps, at which point we make a reassessment based on what we've learned from the experience.

At every point in this process, two new temptations arise: to either leap erratically from strategy to strategy as a short-term desire ("fight or flight" mode) for instant results sabotages any long-term effort, or to tire of the process of negotiation and analysis and give up any sustained effort.

Many who do engage the challenges will do so out of raw self-interest and thus they will base their solutions on inflexible ideological (political and/or religious) worldviews that are too rigid to be practical/realistic. Rather than face the problems with an eye on actual solutions, these players seek to protect their own fiefdoms, privileges and benefits under the guise of emotionally appealing ideologies. Faced with the loss of their sacrosanct (to them) privileges and benefits, they view the battle for diminishing resources as a "fight to the death." In a real sense, their status and advantages are definitely at risk; but ironically, by focusing on their ideological opponents instead of the actual problems, they seal their own destruction by insuring the collapse of the entire system.

Both ends of the political spectrum are prone to this frantic defense of the failing status quo: the plutocracy/holders of wealth and those drawing benefits/welfare. This too mirrors the experience of the Roman Empire's decline, which saw massive expansion of wealth disparity (those at the top gained ever more wealth at the expense of the middle class) even as an ever-growing army of unproductive recipients at the bottom received the infamous "bread and circuses" of free bread and public entertainments.

As a consequence of this rabidly self-serving political battle over diminishing resources and surpluses, those championing flexible, practical solutions are crowded out by the shrill, desperate voices of those protecting their fiefdoms and privileges. The result is a profound disunity in the body politic in which compromise is abandoned and common ground vanishes. As external and internal threats increase and surpluses/resources shrink, the culture and economy are frozen into warring camps, each of which seeks to undermine the other rather than actually address the severe problems facing the entire body politic and economy.

All these forces—complacency, fatalism, fanatic self-interest, ideological rigidity at each end of the political spectrum and political disunity—pose enormous challenges to those seeking long-term solutions to critical problems.

If we seek historical examples of the immense power of complacency, we need look no further than the Western Roman Empire.

For an explication of just how destructive such deep complacency can be, I turn to the excellent account of the causes of the Roman Empire's collapse by Michael Grant, The Fall of the Roman Empire :

"Enmeshed in classical history, all he can do is lapse into vague sermonizing, telling the Romans, as many a moralist had told them throughout the centuries, that they must undergo an ethical regeneration and return to the simplicities and self-sacrifices of their ancestors.

There was no room at all, in these ways of thinking, for the novel, apocalyptic situation which had now arisen, a situation which needed solutions as radical as itself. His whole attitude is a complacent acceptance of things as they are, without a single new idea.

This acceptance was accompanied by greatly excessive optimism about the present and future. Even when the end was only sixty years away, and the Empire was already crumbling fast, Rutilius continued to address the spirit of Rome with the same supreme assurance.

This blind adherence to the ideas of the past ranks high among the principal causes of the downfall of Rome. If you were sufficiently lulled by these traditional fictions, there was no call to take any practical first-aid measures at all."

But fatalism, often expressed by opting out/withdrawing from society, can be just as destructive as complacency.

As Grant noted elsewhere in The Fall of the Roman Empire :"Considerable sections of the population of the later Roman Empire decided to opt out altogether. In the first place, a large number of people, finding the social system intolerable, went underground and became its enemies. But a second movement consisted of numerous men and women who merely abandoned the company of their fellow human beings and divorced themselves from the community.

And so as the final political and military reckoning rapidly approached, this substantial number of men and women was no longer available to contribute either to the actual defense of the Empire or to the revenue needed to pay for the defenders."

Grant traces much of the intellectual justification for what might be termed "a fatal fatalism" to Christian thinkers like Augustine:

"And so Augustine preached, as other had before him, that 'we do not want to have dealings with the powers that be.' That is frank: a call to withhold service from the government. Equally frank is his reminder that the Empire is bound to collapse anyway.

Augustine shifted the center of gravity so that the state is now a good deal less that half of what matters: far from helping his own country to survive, his attitude contributed to its downfall. But his suggestion that, since it was up to Providence whether the Roman world should collapse or not, human endeavor could do nothing about it in any case, met with the strong disapproval of thinkers such as Pelagius.

Pelagius' reaction to the sacking of Rome in 410 by Alaric was by no means limited to fatalistic gloom and despair. Both before and after the capture of the city, he found himself deeply dissatisfied with the moral sluggishness of many prosperous people of Rome. He insisted on a strenuous individual effort to attain salvation: we sin by a voluntary imitation of Adam, and an equally voluntary decision can cast our sins behind us.

His doctrine of the will at least wanted people to try. Augustine's philosophy, on the other hand, led to fatalism.

Given the stupendous inertia of complacency, the fierce defense of the status quo from those contributing little but reaping plenty and the intellectual and emotional charms of fatalist surrender or withdrawal, those seeking practical solutions and strategies may well see the battle as essentially hopeless.

As tempting as that fatalism might be, there is hope offered by the Pareto principle: the influential few (The Remnant) can indeed lead the trivial many.

Opting Out/Opting In

The desire to withdraw from a corrupted, declining society, or indeed, from the imperfect company of humans, stretches back to the dawn of civilization. In many cultures, a spiritual quest for Oneness with God/Enlightenment encourages withdrawal and rejection of worldly goods and goals.

We have seen in the example of Rome how eras of crisis encourage many to "opt out" of society. But opting out of society can mean either a withdrawal to what we might call "splendid isolation" or an opting in to an alternative social structure.

Thus the yogi, spiritual seeker, or Transcendentalist might well seek complete isolation in a wilderness, while others opting out of a failing state might join a religious commune or monastery. Such communities are largely self-sustaining, even as they retain ties to various parts of the greater society and economy.

Both of these methods of opting out have deep roots in American culture and history. The noble desire to seek Oneness with God and fulfillment via oneness with Nature was championed by Henry David Thoreau in Walden, while various faith-based communes and communities have found fertile ground in every century.

Splendid Isolation also ties directly into a key American Myth: the Rugged Individual. This is a tangled web of fantasy, reality and hidden dependence on a functioning economy beyond the wilderness. Thus even Thoreau walked back to town on numerous occasions, for food and social contact, and the Buddhist mendicant monks of Southeast Asia rely on the alms of productive people for their sustenance. In other words, Splendid Isolation still relies in most cases on "the outside world" to grow the grain, etc. which the "one alone" ultimately relies upon.

It is exceedingly difficult to grow, nourish and sustain all that life requires alone. That is the fundamental reason why most primates, including humans, form groups: a group is simply a far more productive, robust survival structure than a single individual.

Thus, rugged individuals who could survive on their own form communities to reap the advantages of such mutually beneficial networks.

A few years ago the U.S. Army ran an advertising slogan "An Army of One." But this was a misnomer, for the single most important combat asset is unit cohesion. Even the supreme Rugged Individual survives best in a circle of others willing to fight together for a common cause.Another enduring myth of American culture is "living off the land." Many of my correspondents who hunt and fish report that when discussions of financial hardship arise, many of their acquaintances say they will simply bag some deer and go fishing to feed their families.

Sadly, what was possible in the remote, largely unpopulated America of the distant past is not possible for a nation of dwindling wilderness and 300 millions mouths to feed.

The more one has actually walked remote areas of the nation like the Rockies, High Sierra, great deserts and untilled plains, the more one comes to understand just how little food for humans exists in the wild. This is why hunter-gatherers require vast tracts of land: Nature is indeed bountiful, but rarely for humans.

It is easy to over-estimate the number of wildfowl, fish and large mammals available for human consumption in the "wild," and even easier to overestimate the calories available to be reaped from the wild before the land is stripped of game and other edibles.

The hunter who bags several dozen pheasant, for instance, ends up with a pitifully small bag of dried meat at the end of the process. As for the plentiful fish—let's not forget they were stocked by an advanced-technology, oil-fueled, well-funded state agency. Once the fish are no longer stocked, the illusory bounty disappears.

To the unknowing eye, the Hawaiian rain forest looks like it must be a veritable cornucopia of edibles suitable for human consumption. In fact, the truly native Hawaiian rain forest offers very little to hungry humans. If you come across a mango or banana tree, that was planted by other humans.

You would also find that the "wild" mango tree is remarkably stingy with its bounty. Growing high above the ground, most of the fruit is unreachable, even with ladders, and the fruit is small and mostly seed; the actual pulp is stringy and meager compared to the farm-coddled mangoes we find in markets.

Thus a small intensive garden may well contain more human-suitable food than a square kilometer or square mile of wilderness. Many bounteous wild crops like acorns require a backbreaking amount of work before they can be rendered suitable for human consumption—and they require copious amounts of fuel for cooking.

It is sobering to recall that tiny bands of primitively armed humans hunted the wooly mammoth to extinction in a matter of a few decades, and a relative handful of better-armed Americans shot millions of bison in a few short years, driving the herds which once blackened the plains to the precipice of extinction.

We should be very wary of all such complacency traps: there is simply no way to feed 300 million people by foraging a mostly calorie-barren landscape and fish-stripped sea. Such a stupendous population requires a large-scale, heavily mechanized intensive production of grain.

Conclusion #1: everyone who opts out of a given social circumstance opts into some other circumstance. There can be no "opting out" without a corresponding "opting in" to something else.

Conclusion #2: Opting into a myth is not a sustainable option; humans developed social networks /communities and agriculture precisely because the alternative options of Splendid Isolation and foraging were perilously less successful survival strategies.

Conclusion #3: The key difference between opting for isolation and opting into alternative communities/networks is the sustainability and productivity of the community. Very few who live in isolation are truly independent of a larger productive society. This simple truth is the engine behind agriculture and urban centers.

Thus the skeptic gazes at the latter-day isolationists who stockpile six months of advanced-economy, advanced technology consumables in a remote cabin and asks:

What happens in Month Seven when the stockpile is gone? Or make it Month 13 or Month 25; the point is withdrawing without creating a productive sustainable source of food, energy and other critical necessities is not a survival strategy at all, it's simply pushing the day of reckoning forward a bit.

Creating an integrated, independent, sustainable productivity by oneself or as a couple is akin to raising a child in isolation: it looks fun until you really give it a try. A baby may well be adorable to a teen for an hour or so, but give the teen the baby for 48 hours straight and his/her reaction will be quite different.

Haul water in five-gallon buckets from a stream for a few weeks, cut wood by hand, carry a 5-gallon propane tank by bicycle down to the refilling station, sharpen a chisel by hand, fix a balky gas-powered refrigerator—the list of skills and energies required are far longer than a myth-based culture can even imagine.

While it is possible to envision a technology-rich "splendid isolation" fueled by solar panels, water pumps, satellite Internet links, geothermal-exchange heating, triple-pane windows, all protected by elaborate security technology, there are two difficulties with this scenario: few can afford to set it up, and those few who do have created a high-value, very vulnerable target in the middle of an existing population with whom they have no social or economic ties. One need look no farther than luxury vehicles being smashed and burned in the streets to foresee the possible responses such wealth disparity causes.

There is a model for barricading oneself and one's wealth behind high walls of security: all "planet of slums" cities in the Third World contain small heavily defended islands of wealth in a vast sea of poverty. If this lifestyle appeals to you, there are ample opportunities to try it out today in any Third World mega-city/mega-slum.

The skeptic wonders if the Isolationist expects others to have constructed a large-scale productive sustainable economy in their absence, and to welcome those who opted out of contributing to the arduous construction of this sustainable future with open arms.

Just because the grasshopper squirreled away a stash to last the winter does not mean the productive colony of ants will welcome his future freeloading come spring.

Thus the goal must be a truly sustainable productivity, not a temporary opting out dependent on a stockpile of unsustainably produced consumer goods.

In some societies, the religious mendicant can freeload off the productive society because the productive members believe feeding the mendicant provides them with religious merit. But the U.S. is not such a society; its historical religious principles are expressed in the line, "The Lord helps those who help themselves," and stockpiling high-tech goodies to last a few months is not actually helping oneself or others in any long-term, sustainable fashion.

Next: A skeptical look at Isolationism: The Art of Survival, Taoism and the Warring States

Note: my computer time will be extremely limited and sporadic over the next two weeks. Please check the main blog at www/oftwominds.com/blog.html for updates. Thank you.

I am rather embarrassed to note that I was once a government bureaucrat, working for DoD (2002-2008), "ensuring the best systems for our warfighter" and other such public-relations nonsense.

You can't possibly imagine how much money is spent in the name of "government oversight." In my work as a systems cost estimator, we would normally add 100% as a good rule of thumb. 100%! That is, let's say Program X, The Super-Duper Missile Program, is advertised in the MSM as being a $1 billion dollar program. That "$1 billion" is just the money that gets paid to the contractor, say Blockhead-Marteen, for development and production.

There's also at least an additional $1 billion dollars that needs to be spent to oversight the spending of the $1 billion that's going to the contractor. E.g., for cost estimation, integrated logistics support, systems and software engineering, contracting, legal, security, information assurance, not to mention the veritable army of support contractors that file all the relevant DoD paperwork - the reports and baselines and earned value data and the like.

This "oversight" money, however, is never included in the cost performance data of any contract. It just exists in the ether - in our cost estimation work we would always simply assume that the money for government oversight would be supplied. As a corollary, this oversight function was performed, at least during my tenure, not by civil servants, but by support contractors (e.g., Booz Allen, MITRE, CACI) - a bonus of Bush privatization in the vein of Blackwater. How can one pay a for-profit company for oversight? It's an absurd, Kafka-esque proposition.

The term 'military-industrial-congressional complex," which I had previously needed awareness of simply to get one question correct on my AP US History exam, took on a whole new meaning for me after this job. I also became familiar with "iron triangle" and "rent-seeking behavior," which describes what goes on in DoD procurement to a 'T.' That we can accurately define the ills that plague us, yet continue to engage in the same behavior, makes me want to believe that we are stuck in The Matrix. It must be the only logical explanation.

Oliver K.-S.

RE: Mr. Geithner's new bailout plan:

This plan is sheer genius. The bank executives have earned their bonuses again. Here is what I would be doing if I were Citi.

Step 1: I would set up a new entity, say a Structured Investment Vehicel (SIV) and call it $chiti. I doubt the banking regulators will think there is anything strange with this name.

Step 2: I would place 10 billion dollars of TARP funds into $chiti. This money, which the government gave Citi, comes in handy for setting up these off balance sheet companies.

Step 3: I would instruct my lackey at $chiti to bid on $250 billion dollars of bad assets in Citi. These assets are not worth $250 billion, that is their face value. That means, that Citi paid $250 billion dollars to buy these assets. The problem is they are only worth between 7 and 10 billion dollars. $chiti would not bid $250 billion dollars for these gems. No, anyone could tell these mis- understood assets must be worth at least $300 billion dollars. So $chiti places a bid for $300 billion dollars.

Now at this stage, one of two possibilities can occur. Some fool may bid more than $300 billion for the bad assets at Citi, or option 2, $chiti wins the bid and gets the assets.

Let's go with option 2 first. $chiti wins the bid, and now needs to come up with $290 billion dollars (remember it only has $10 billion in it right now) to buy Citi's bad assets. This is where the government comes in. Tim's plan lends and "invests" the other $290 billion.

So, now at Citi, I make $50 billion dollars of profit as I get $300 billion for assets that were originally worth $250 billion.

$chiti does not fair quite so well, as the assets it bought are worth no more than $10 billion dollars. So over time the loan the government gave me through Mr. Geithner goes bad, and $chiti goes bankrupt. Unfortunately Citi loses its $10 billion investment in $chiti.

So to recap. I get to shift $250 billion dollars of stuff that is probably worth only $10 billion dollars, to you the tax payer. Citi gets a $50 billion dollar profit from the sale, and $chiti gives Citi a $10 billion dollar loss. As a result I (Citi) make $40 billion dollars. Not bad, and definitely worth a $1 billion dollar bonus for engineering that plan.

Now let's look at that first option. Someone else bids more than $300 billion for Citi's assets. I know it is unlikely, but you never know. Assume they bid $310 billion. Well then, Citi makes $60 billion in profit and it quietly shuts down $chiti and takes back the $10 billion in it. So overall I make $60 billion in money (the $10 billion coming back from $chiti does not count as profit it is really just moving an asset).

So either way, Wall street can now engineer enormous profits for this year. Bonuses will be back with a vengeance. Everyone is happy. Until that tax bill comes due.

In reality Citi probably won't be so blatant as to buy their own assets. They will collude with Bank Of America and JP Morgan and other banks, with the help of Geithner, to buy each others' assets. This way it all appear kosher, while the taxpayer is fleeced for vast sums of money.

As part of my job, I train nurse practitioner students from a nearby University. I am now training Mrs. Ai B., a woman with a very interesting history. Her father was an employee of the C.I.A. in the Vietnam war (he was Viet). After the war the family was captured. Ai spent 6 years in a peasant value re-education camp, and her father 8 years in a hard-core prison.

In spite of this, apparently neither of them are bitter, and still feel Vietnam is their home. Mrs. B. married a Canadian. She told me she would like to go back to Vietnam with him, and that he could teach English - he'd make $1,200 a month, but she said you can live quite well on $100 a month.

Her mother was a pharmacist and was often called upon to diagnose patients, who arrived by dugout canoe if too ill to walk. At age 8 Ai delivered medicines to nearby villages, and became adept at identifying intestinal worms and prescribing the right antihelminthic - no M.D. required, and patients paid gratefully.

The only Viet I know is the different ways to say "hello". I wondered what kind of living we would have if our two families went together - Ai's husband as an English teacher, Ai as a nurse practitioner teacher/translator for me and my wife, who is an optometrist. I bet we could live like royalty compared to our middle class lifestyle in the U.S. I'd use my Canadian passport to avoid political strife. And I bet the authorities wouldn't be too fussy about my qualificiations or my wife's either. I'm moderately good at picking up languages, and would probably have serviceable at least medical Vietnamese in a year.

And we'd all be doing GOOD for really suffering patients!

Again, if I was the only doc in a 100 mile radius I bet the local Communist Party Cadre would take real good care of me.

I'll give you one example - a friend of mine, now deceased, R.I.P., fell in love with Costa Rica. He set up a free clinic in a remote area. He got all his medical supplies donated from local hospitals and clinics. He had doctors come as "medical vacations" - work half the day, fish, jungle treck or surf half the day, stay at an old mansion donated for the clinic and write the stay off your taxes.

Costa Rica is relatively cheap, but they do have one BIG expense - there is a 100% duty on any imported vehicle. That's right - you buy a $25,000 4wd truck in the U.S., you pay $25,000 customs duty to take it into Costa Rica. My friend did this. When it came time to pay the duty the customs man was "You're from the free clinic? You pay nothing, Senor!"

Then he went to get a license plate from the local Police - again: "You're the doctor from the free clinic - you don't need a license plate - I tell all my men to watch out for your truck!" This doesn't happen in the U.S.A. No malpractice or license fee either. Serious crime is rare in Costa Rica but petty crime, especially theft from vehicles is very common. Nobody touched the truck.

One happy note - there was a man who had lost both legs in an accident, and got around on a wooden platform with roller skate wheels. My friend got a local ortho prosthesis company to make him two legs - now he can walk. THAT kind of stuff is what international peace is made of. You think a lot of Costa Ricans didn't hear about that? shock and awe. Give a legless man a pair of legs. Better yet, give the legless child of a family a pair of legs. You think this wouldn't work with the Taliban?

Lastly, another good friend of mine who died prematurely R.I.P. was a hospice nurse who made house calls. She'd go to the ghetto in the middle of the night with a doctor's bag full of narcotics. Anyone hassled her, the local crack thugs would come out: "You don't mess with her - she taking care of my Momma!" Leastways, that's what she told me.

Thank you, readers, for sharing these ideas and experiences.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath.

Monday, March 23, 2009

Survival+ : Chapter One

March 23, 2009

Today I begin serializing my new eBook, Survival+. Please bear with me on several fronts. The next two weeks or so my posting and email may well be hopelessly sporadic as I attend to various family projects.

As for this serialized book: you may become frustrated by the analysis sections, as in "get to the practical checklists already!" But the challenges we face cannot be tackled without an understanding of their sources, and whatever conclusions I reach will make no sense if you don't plough through the first sections.

Lastly, this book will be posted for free in its entirety when complete. I will be making Survival+ available for free because this topic is of critical importance and I don't want cost to be factor in whether people read the book or not. I consider it a contribution to the great national discussion.

Print and Kindle editions will be available for $8.88 each should you wish to read the book in either of those formats; those familiar with Chinese culture will recognize the significance of the price: 8 represents prosperity (actually, it rhymes with prosperity in Mandarin). Thank you for giving the book a try.

SURVIVAL+

Structuring Prosperity and Security for Yourself and the Nation

Chapter One

This is intended as a practical guide to structuring prosperity and security for yourself, your community and our nation. Any guide claiming to be practical must first present the contexts and causes of the present challenges we face. Without such an understanding, all planning is like a house built on shifting sand: flawed from the start.

If we are indeed entering a 15 to 25-year Great Transformation, then as prudent as it is to stockpile a few months of food and supplies, that will obviously not get us through the Transformation, either as individuals or as communities. We need a thorough understanding of the challenges before we can fashion a response that will make the Transformation a positive one. Our goal is a sustainable, productive economy and a full appreciation of the fundamental rights to life, liberty and the pursuit of happiness.

To get there, we must first understand the contexts of our situation. I know it is tempting to skip ahead to the list of proposed responses, but they won't make sense unless we ground ourselves in the contexts of our planet, era, society and economy.

There are four distinct issues to sort out:

1. The nature of the energy, financial and environmental trends/crises which are heralding the Great Transformation2. The nature of the negative and positive feedback loops which determine the system's stability and direction3. The responses which have a high probability of making the Transformation positive4. The nature of future work and the skillsets best suited to prospering during the Great Transformation

If we mischaracterize the nature of the crises and fail to grasp the forces powering these trends, then we will select inappropriate responses which will not prepare us to prosper.

You may well disagree with much or perhaps most of this book; that's fine, because the primary goal of the book is to spark a reappraisal of our situation and generate practical responses. I don't claim to have "the answer," or even answers; what I hope to present is a way of thinking about the challenges which is more productive than the status quo.

You may also find some of the ideas presented here difficult to swallow. None of us like to think of ourselves as debt-serfs (yes, I have a mortgage, too), yet how can we move forward if we cannot be honest about our responsibilities and dilemmas? We are all vulnerable to groupthink, propaganda and marketing at various times; there is no shame in simply being human.

Some of you may find parts of the analysis smacking of warmed-over Marxism, while an equal number may find certain sections "right-wing." This urge to categorize any idea or analysis ideologically is part of the simulacrum of thinking we accept as "obvious"—the largely unconscious "politics of experience." That much of what we accept as "obvious" might be wrong is deeply unsettling.

Context One: Human Nature

The first context we must understand is human nature. Regardless of the era or challenge, humans remain "wired" to respond to crisis in the same basic ways. Unfortunately for us, our responses in "default mode" (our first emotional responses) and the solutions we find highly compelling in default mode (inertia/complacency, fear/panic, casting our lot with a "Big Man"/leader or fatalism/giving up) are often not constructive, and may well be highly destructive.

Even more pernicious, our default mode is extremely short-term. As small groups of hunter-gatherers, we simply walked away when we'd depleted the environment of resources; there were always other lands (or islands) available. In this fashion, ancient humans wandered the entire planet long before the first tilled crop was ever planted.

Our default ability to foresee the consequences of our actions is poor; thus time and again human societies have added population and "overhead costs" during prosperous times of ample rainfall and grain yields, only to collapse in catastrophic decline when a string of lean years inevitably came along.

In abundance, we freely spend what's "cheap" and in shortage we mourn what is now "dear" or no longer available. It's not difficult to see the same pattern repeating today.

Given this wealth of material, I hesitate to even attempt a short summary of all the interwoven structural challenges of our era. But the key context is this: financial and resource crises are not new; they are recurring features of human civilization. But many aspects of our era's crises are unique in all of human history: never before have we faced depletion of fossil fuels and the population pressures of over 6.5 billion humans to feed, house, clothe, transport, heal, care for in their old age. Never before have we as a species been so dependent on fragile supply chains and fast-depleting global resources.

Consider the overfishing of the world's oceans; what once seemed inexhaustible—the supply of fish—is now heading to near-zero.

Ironically, this cyclical nature of crisis lends itself to the emotional power of complacency: if we managed to get through those crises, then we can do it again, the power of human innovation will save us, etc. Unfortunately, there have been many times when the human populace did not "get through" the crisis; populations collapsed to mere shadows of their levels reached in the years of rising abundance.

1. Peak oil, or the depletion cycle/end-game of the global economy's complete dependence on inexpensive, readily available petroleum/fossil fuels.

2. The cycle of credit expansion and contraction (approximately 60-70 years), which is now beginning the transition from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.

3. The generational cycle (4 generations or approximately 80 years) of American history which leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781 +80 years = Civil War, 1861 +80 years = 1941, World War II + 80 years = 2021)

4. The 100+ year cycle of price inflation and stagnation of wages' purchasing power which began around 1901 is now reaching the final stage of widespread turmoil, shortages, famine, war, conflict and crisis.

Without a firm understanding of the cyclical nature of human history and the unique challenges of our era, we are hard-pressed to escape the comforting illusions of complacency and fatalism.

Context Three: The Forces Which Power Trends, Reversals and History

Within each context, various forces are at work to resist and accelerate trends. These forces include feedback loops (both positive and negative), marginal returns and the illusion of incremental change.

Context Four: The Environment

It is tempting to hope that all the structural environmental challenges will "sort themselves out" or be solved by some new technology that magically scales from the lab table to global ubiquity. But the realities do not lend themselves to either benign neglect (that is, just leave everything alone and it will rebalance itself naturally) or technological "fixes."

The human population has exploded in a geological eyeblink from several hundred million to 6.5 billion. In terms of energy and resource consumption, each resident of the First World (Europe, North America, Japan) has an environmental impact up to 100 times larger than that of a Third World person. As 2 billion people in China, India and elsewhere aspire to an energy-intensive consumerist First World lifestyle, the reality that the planet does not have the resources to support 3 billion middle-class consumers is readily visible.

The list of global environmental ills is well-known. Overfishing driven by insatiable demand and politically popular subsidies of national fishing industries has driven the world's fisheries to the point of collapse. The technological "fix" is aquaculture/aqua-farming, but artificial fisheries spawn another entire host of their own problems.

The depletion of cheap, easy to reach oil is also well-known; less well-known is that all the alternative energy sources in the entire world—geothermal, hydro, solar, wind, tidal, etc.--make up less than 5% of global energy supply. While natural gas and coal can fill some of the gaps as oil supply falls, neither of those fuels is endless, either—and "clean coal" is yet another technology that is promising in the lab but not scalable globally without horrendous cost.

Fresh water aquifers are being drained everywhere from the American southwest to China, and there are no sustainable ways to compensate for this drawdown of irreplaceable fresh-water resources.

Schemes to desalinate vast quantities of seawater requires stupendous amounts of energy; a recent plan by Saudi Arabia would burn fully 1 million barrels of oil a day—1 million barrels that could no longer be exported to the U.S.

Regardless of what we believe the causes might be, glaciers are melting at increasing rates. Once the Himalayan and Andean glaciers vanish or recede to mere patches of ice, the rivers 2 billion people rely on for irrigation water will become seasonal.

Add in massive soil erosion in China and elsewhere, extended droughts in Australia, etc., and you get a picture of global resources stretched to the breaking point. The more you know about the technical details of supposedly miraculous technological "fixes" like desalination, tidal energy, algae-based fuels, etc. etc., the more you understand that very few if any of these emerging technologies may "scale up" to global applications.

In other words, algae-based fuels can work just fine on the rooftop of a university lab, but the hard part is scaling it up to produce 1.7 billion gallons of gasoline-equivalent liquid fuel a day—which is only half of the world's current consumption of oil. (Total global consumption of oil, 80 million barrels a day, so 40 million barrels a day X 42 gallons/barrel.)

Add these realities up and the context is a potential crash of global food and fresh water supplies, exacerbated by energy shortages. As authors such as Diamond have explained, eras of resource depletion/drought often trigger unending war/conflict between competing groups and nations.

The "prosperity" of the past two decades was based not on savings, investment and productivity, as the mainstream financial media and think-tank punditry maintain, but by extremes of speculative credit, leverage, debt and risk-taking, all enabled by a financial system based on obfuscation, deception, embezzlement, fraud, abuse of credit and grossly inflated asset valuations, a.k.a. bubbles.

This debt binge was fed by a marketing-based consumerist culture in which shopping and acquisition became recreation, therapy, self-fulfillment and status all in one profit-driven focus.

Compounding the collapse of this debt-based bogus "prosperity" are two long-term trends: the end of cheap, abundant fossil fuels which enabled inexpensive global supply chains and tourism, and the "end of work," a global contraction of paid labor.

Context Six: Squeezing the Middle Class

The intersection of various long-term political and financial trends is effectively squeezing the middle class, which the state (government) depends on to pay most of the taxes. Caught between the over-reach of both the state and its elites (known here as the Plutocracy) and the end of debt-based, cheap-oil "prosperity" which enabled it to maintain an illusion of wealth, the middle class is being squeezed to the breaking point.

Context Seven: The Nature of Prosperity and Happiness

The U.S. Declaration of Independence recognizes the inalienable rights to "life, liberty and the pursuit of happiness." Oddly enough, happiness turns out to be a slippery concept, and much of what Americans spend their lives pursuing does not actually increase their happiness. Indeed, it is self-evident that the stress levels, medication usage and miseries of the "American lifestyle" even in times of prosperity are far higher than one would expect were happiness as abundant as cheap consumer goods.

And even prosperity itself turns out to be rather more slippery than rising GDP or other metrics would suggest. It seems that much of what passes for "essential accoutrements of prosperity" such as large suburban homes, multiple vehicles and closets of clothing do not bring happiness to their owners. Rather, they are largely the mirage-like results of marketing propaganda conjured up to generate profits, not life satisfaction or happiness.

Indeed, were we to travel back in time to 1870s San Francisco, for example, we would find people feeling quite prosperous even though they lived in what we would now consider relatively primitive poverty: no electricity, no vehicles except public streetcars, (On August 2, 1873, the inventor of the San Francisco cable car, Andrew Hallidie, was the system's first passenger), trains and horse-drawn wagons, primitive healthcare, costly consumer goods, etc.

Thus the entire notions of prosperity and happiness must be examined objectively before we can even say with any reliability what the words actually mean.

Context Eight: The framework of our response

Our responses to these interwoven, reinforcing challenges of our era can be broken down into three inter-related levels:

--family

--community/networks

--nation

Each level requires different skills, resources, inputs and solutions.

Friday, March 20, 2009

The "Can't Do" SpiritMarch 20, 2009

The enduring myth of America is that we have a "can do" spirit. Now we have devolved to a "can't do" spirit in which nothing is possible except generate excuses for ourselves and borrow/print more money to stave off the day of reckoning.

I know I am treading dangerously close to adding /rant tags to this entry, but please consider it what we now call "intervention," when addicts and enablers are presented with the consequences of their choices.

Now look at that chart (of Federal spending)- you can't remove the "net interest" (about $250 billion), because that has to be paid. "Other spending", that is, other than defense, interest, and social programs, is about $700 billion. Defense is also about $700 billion.

If we find ourselves unable to sell debt to actual investors with actual money, we are circle-jerking ourselves; to balance this budget we would need to contract spending to roughly $1.0-1.5 trillion in total.

Since the interest payments are inviolate, that leaves us $1.25 trillion for everything else. Assume we can cut half of the defense budget, we've got $800 billion left. Cutting "other spending" (that is, all other programs) by 50% would leave us with about $500 billion net-net for social programs - forcing a reduction of about sixty percent in Social Security, Medicare and Medicaid - all at once.

I have long gone on record predicting we will soon be borrowing $500 billion a year just to pay $500 billion in interest, at which point the "borrow and spend" game will be over.

So what do you think the response is when you tell Americans that Medicare and Medicaid and Social Security and the DoD (Department of Defense) will all have to be cut in half if we are to live within our means as a nation? "It can't be done. No way, etc."

So much for the "can do" spirit. In reality, all of these program could be cut in half and will be cut in half; the only question is how deep a fiscal hole will we dig ourselves before reality breaks through the dikes of denial.

There are readers of this very blog, working doctors and nurses, who could outline exactly how we could cut Medicare and Medicaid in half without sacrificing as much in the way of actual health care as you might think. But "it can't be done" because numerous "rights" and Sacred Cows cannot be touched, no matter how dire the financial straits may be. Just borrow the money from somewhere, we don't care how, just get it! This is my right!

There are a number of young active-duty officers who read this blog, and they too could quickly outline how to save billions of DoD spending by streamlining and eliminating low-return procedures, programs, etc.

The U.S. Navy's shipbuilding program is a disaster--a fact everyone agrees upon. But cutting it "can't be done." So we have a supposedly "cheap" ship like the LCS which quickly ends up costing $400 million each--fully loaded, $500 million.

While our potential enemies produce dozens of capable diesel submarines a year, we build two "best of class" nuclear subs a year and each one costs billions. Sadly, a $3 billion sub can be sunk by a $1 million mine or torpedo as easily as a $200 million sub.

The new F-22 fighter costs $300 million each--yes, each. By the time the final price tag comes in with the usual over-runs, it will be $400 million. So as a result, our Navy and Air Force are shrinking because no country, even an Empire which can print trillions of dollars, can afford these costs.

Build a capable fighter for $30 million? It can't be done. Build a capable littoral fighting ship for $100 million? It can't be done. True, it can't be done with the procurement system we have now, in which every weapons system must be "the best ever" and must be capable of handling every possible mission under the sun.

Here's how to fix it. Take the program away from Congressional meddling and DoD, sit some experienced war-fighting officers down and tell them that the budget for the next generation fighter is $30 million--that's it. Now design the best that we can afford. No, it won't have the radar signature of a sparrow, and it won't be able to handle every mission; but by using existing airframes and off-the-shelf engines and electronics, you could put together a pretty decent aircraft.

Even better, you could develop cheap drones and stand-alone HARM (anti-radar) vehicles which could drift around waiting for the bad guys to flip on their radar, and then bam, nail the radar site without even risking an aircraft or pilot.

Improve the Sidewinders (air-to-air missiles) and electronics--that's extending capabilities without spending $300 million per aircraft.

As for the shipbuilding program: maybe it's time to give our allies a chance. The Koreans and Japanese have decades of experience in shipbuilding; tell them the budget is $100 million per ship and see what they come up with.

It's really very simple: we as a nation can no longer afford the weapons procurement system currently in place. Changing it "can't be done," of course, until there's no money left. But by then it will be too late.

Taking up the theme of adolescence from yesterday: here is a short list of the minimum characteristics of adulthood:

1. self-control

2. self-discipline (not the same as #1)

3. accept responsibility for one's actions and the consequences of one's choices

4. be able to look past tomorrow, i.e. long-term planning

5. understand life is contingent, i.e. always have a Plan B

Education or status are not factors. Someone with an 8th grade education who achieves adulthood will do OK in life while the person with higher education and all the advantages of life will not do OK if they never grow up.

Those of us who have always lived on the fringes of the economy, i.e. either running a business or working for small, vulnerable enterprises, understand General Douglas MacArthur's statement: "There is no security on this earth; there is only opportunity."

From this point of view, it is peculiar indeed how the supposedly "can do" citizenry now look to institutions to make everything right: schools should teach my kid, doctors should fix my ailments, the gummit should give me a job, mortgage, etc.

I know this may come as a shock, but it's painfully obvious that the welfare state, and indeed the state itself, is in the process of devolving into insolvency. We as a nation have chosen to forstall difficult choices by borrowing trillions of dollars, and currently that's Plan A: keep borrowing and spending trillions until some new financial bubble arises which bails us all out.

But suppose that doesn't work; how about Plan B, living within our means? As Karl so succinctly described, that means a Federal budget of $1.5 trillion based on revenues of $1.5 trillion, not a spending spree of $3 trillion based on revenues of $1.5 trillion.

The same can be said of every state, county, agency, city, university/college, etc. Government currently takes about $5 trillion of the $13 trillion U.S. economy. As that economy shrinks from dependency on credit/debt bubbles, then government will also have to shrink. Isn't that common sense? As we borrow more, we have to pay more interest on our growing debt, and that rising interest squeezes out other spending. Isn't that common sense?

Perhaps we should consider what our "rights" may shrink to: life, liberty and the pursuit of happiness. Maybe before we ask the doctor/nurse to fix us, we should ask ourselves: what have we done to heal ourselves? Have we done everything within our power to become healthy and stay healthy?

Before we demand that schools teach our kids so they can prosper, maybe we should ask: how many hours did we spend with our kids this week going over homework? How many hours did we set an example by learning something new and difficult ourselves? How many hours were wasted with TVs, PCs, cell phones, videogames and iPods in our household?

Before we demand that the government somehow make us all healthy, maybe we should ask: what did we eat this week, what did we cook this week, and was it healthy for us or not? How much fitness did we work in? Kids love doing cartwheels; did we show them how? It doesn't take much to observe that kids generally like what their parents like; if adults are eating fruit and vegetables because they're yummy, then the kids will generally find them yummy, too.

So government is unresponsive and influenced by special interests; how many times did we contact our elected officials this month? Did we contact our city councilperson even once this year? How many school board and city council meetings did we attend? If we provide no input and oversight, then exactly why should government be responsive and accountable?

Quite honestly, I have been a moron with money most of my life, not from indulging in overspending, because I'm a complete tightwad (those Scots genes, heh), but from taking insane risks like starting businesses in recessions and building houses when I didn't have a job, playing with options when I didn't know what I was doing and dumb stuff like that. As a consequence, I am not wealthy. But those were my choices and it's my character to jump in enthusiastically and then suffer the consequences of a steep learning curve.

This is a poor strategy; it's better to build up to higher levels of skill and understanding over time (see #4 above.) As a completely average person, it takes me a long time to learn things and work myself up to bare adequacy. After many years of training and effort, and lots of practices and benchwarming, I transformed myself from woeful athlete to mediocre athlete. Starting from a low level, that was a big accomplishment, though it certainly didn't look like it from the outside.

I have been down to my last $100. I have had to mortgage my house to pay my suppliers and subcontractors. I have moved to towns or cities where I knew no one (or one person) and somehow established myself. I have been unemployed. I have been injured. I have made just about every possible financial mistake other than losing it all in Vegas, and that's not because I'm so smart but because gaming doesn't appeal to me.

Thus I sympathize with the people described in this story: Financial fears growMore consumers are just a paycheck or two away from ruin. There are no simple fixes to insolvency. All we can do is focus on items 1 through 5, and on the inalienable rights of life, liberty, the pursuit of happiness--and the opportunity to make mistakes and change things in ourselves and our lives.

Right now we are in national denial. We are hoping that borrowing and spending trillions of dollars will somehow "fix" the devolution of a top-heavy, inefficient, credit-dependent economy; it won't. We are hoping that some miracle pill will "fix" our many self-induced illnesses; it won't. We wish we didn't have to think of a Plan B, but we do.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath. NOTE: The serialization of my new ebook "Survival +" starts March 23. Of Two Minds reader forum (hosted offsite, reader moderated) New Operation SERF Installment:Operation SERF, Part 12Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes. Thank you, Mariam B. ($20) for your much-appreciated generous donation to this site. I am greatly honored by your support and readership.

Thursday, March 19, 2009

Youthful exuberance or foolish risk-taking which ends badly? Ah, adolescence. Or is "taking it to the limit" just a rational gaming of the system?

Correspondent Scott D. offered these thought-provoking observations on the behavioral "age" of the players in U.S. financial markets--and beyond.

I was just reading Yves Smith's piece tonight on Naked Capitalism (On Traders Behaving Badly and Cognitive Bias) and toward the end of the piece, she discusses why there is not more outrage, why we allow our financiers to make such insane bets and foster the attitudes that incubate crises such as these.I was reflecting on conversations I've had with a few European friends over the years, one from Montenegro once told me that "America is hitting her teenager years, watch to see if she crashes the car". Our country is indeed young when compared to Europe, our identity is still the conglomerate identity of the world and there isn't a way of defining "America" beyond traditions in different regions and of course the "can-do spirit".Even more so, our nation is a late teenager, one who now needs to decide if it can mature and come together, or fracture ribs, skulls, houses, and lives in the collapse after the heyday. One thing I've noticed as I progress through my 20's (now 26) is that my extremes have become, well, less extreme. I don't drive nearly as fast, I don't have eating contests with my buddies, late nights (except Thursdays) are now a function of my 1 year-old rather than a poker game. In short, I don't push my system as hard.Yves speaks of training traders to maximize profits, to take it to the limit and beyond. I can't help but think that this is the problem with many aspects of our society. Those who have found the limits of the system, whatever system it may be, who have spent their lives abusively using the very institutions off of which they thrive, have trained a generation of extremists. Everything we do is specialized, we push it 110% (whatever that means) and nothing short of success will do.I am elated that the system is forcing us to take a step back for the current zeitgeist, opening up opportunities to take the middle path, to not run on extremes but instead to build a sustainable society centered on the rewarding return of hard work and due diligence. Here's hoping.

Thank you, Scott, for these insightful comments. When pondering the relative "age" of any society, I am reminded of Zhou Enlai, Premier of China in the Mao era, who when asked about the consequences of the French Revolution, is reputed to have told Henry Kissinger, "It's too early to say."

Now that's a long-term perspective--and a darned fine quip as well.

As noted here in the past, there are unmistakably adolescent characteristics in Americans' self-absorbed irresponsibility in the financial realm. Nobody had a gun to the skull of those buying houses and autos with no money down, and nobody forced anyone to withdraw their entire net worth from their house via a home equity line of credit.

And nobody forced any institution to join the Dark Side of the "shadow banking system" which dealt in obscure and impossible-to-price Dark Arts derivatives. It was all about greed and maximizing your share of the spoils.

We can discern the same "extract every dime you can" in the battle in the bankrupt city of Vallejo, CA, in which the public unions are fighting tooth and nail to retain what are obviously unaffordable pay/overtime scales and benefits. Never mind the pay and benefits were raised just a few years ago in a bout of short-sighted, bubble-economy largesse; "it's my right!"And how about America's blithe willingness to borrow trillions of dollars from non-U.S. entities? Hey, why not? Well, there's the little matter of paying interest, which will soon crowd out all other government spending.

Correspondent M.G. offered these thoughts on California's dysfunctional reaction to the unpleasant reality of having to "live within its means":

California is in budget trouble again, no surprise. I think our handling of the budget is a good indication of what the country as a whole will do. Fiddle and come up with grandiose spending plans (we have our own global warming initiative, stem cell initiative, etc.) until they hit the wall. No compromise between parties, no big picture at the top. Spoiled citizens who think there are always more rich people to tax. No need for messy industry either. We're "knowledge workers, man!"

Is all this reflect a deep and abiding immaturity of American society, or is it just rational gaming of the system? In other words, if the city's coffers are overflowing for a few years, let's loot it. If some suckers are willing to buy shady derivatives, let's take their money and laugh all the way to our Hamptons mansions. If somebody's dumb enough to sign an adjustable-rate mortgage with toxic re-sets, let's rip them off for the huge fees and move on, after promising them they can re-finance to a fixed rate after we've blown town.

It can certainly be argued that this "taking it for all it's worth" is a "rational" response to a system perceived as wide open to looting. From this perspective, everyone who maximized their personal profits by looting, stealing, lying, conniving and commiting fraud did so as a rational player in a massive financial game.

Now that the game is being tightened up, then the opportunities to loot, cheat, lie and steal are narrowing.

If we assume all this behavior was merely a rational response to a system ripe for gaming, then we might reasonably assume the response to "game over" might also be equally rational: OK, that was fun, now let's get real and live within our means.

But that's not what we're seeing on a societal wide scale. We're seeing instead stupendous denial of responsibility and reality: let's just borrow trillions of dollars from somewhere, anywhere, so we don't have to suffer any consequences of the system we gamed blowing up.

Here in California, our far-sighted and wise political leaders have conjured up a scheme to avoid living within our means: let's sell bonds against future state lottery earnings!

Is this rational? It would be difficult to make a case for it as anything other than the desperate, adolescent flailings of people who refuse to accept responsibility. "That tree jumped out in front of me! It wasn't my fault! Just buy me another car and I'll be careful this time!"

Collectively, we as a nation are whining and begging, "just loan us another couple trillion until we get back on our feet. We promise we'll be more careful next bubble!" Only there won't be a next bubble. We have to pay our bills with cash from now on, or bring the nation to inevitable insolvency. Was greed, fraud, lying, embezzlement and the debauchery of credit and leverage all rational? You can make that case, to be sure. But then you have to accept that the rational response to the implosion of the "game" is to tighten up, get real and live within our means. No matter how "rational" it might have seemed to exploit the game, it isn't rational to recklessly borrow trillions to avoid the consequences of the game ending.

In a perverse irony of democracy, California is asking its voters to approve a sales tax increase (already 8.5% in many counties), an increase in the state income tax (already 9.5%) and the absurd folly of borrowing billions against future lottery earnings. As I recall, it's the most vulnerable and least able to throw money away who play the lottery; and I'm supposed to support this adolescent gambit to avoid living within our means?

I refuse. The teenage years are over, and it's time to grow up. There isn't enough money for everyone and everything, and so difficult prioritizing and choices have to be made. It's called adulthood, and it may or may not be "rational," but it is certainly real.

Ms. Smith insightfully suggested that there may be cognitive biases at work in our seemingly ho-hum response to this grand-scale outright theft, fraud, looting and lying. But perhaps there may be an emotional reason for this silence, too--one called collective guilt. Maybe we as a nation can't in good conscience raise our voices in righteous outrage because that would be the most egregious hypocrisy possible. Too many of us played the game, too, just on a smaller scale, for our protests to sound like more than the tinny complaints not of the righteous but of sore losers.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath. NOTE: The serialization of my new ebook "Survival +" starts March 23. Of Two Minds reader forum (hosted offsite, reader moderated) New Operation SERF Installment:Operation SERF, Part 12Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes. Thank you, Riley T. ($75) for your continuing great generosity to this site. I am greatly honored by your support and readership.

Wednesday, March 18, 2009

The Migration of Capital and Human TalentMarch 18, 2009

Capital, both financial and human, migrates to opportunity and away from lopsided risk/return ratios. Those entities--state and private--which understand this will prosper while those who overburden capital will find it migrating away, leaving them doubly impoverished.

Correspondent Kevin M. submitted this thought-provoking response to yesterday's entry on the "return of Big Government":

Read from afar, The Return of Big Government and the (de facto) Welfare State (March 17, 2009) describes the onset of conditions here in the U.S which are decidedly third world in nature. Should that be a reality in our future, a reinforcing trend would likely develop complicating everything you and other correspondents describe. For centuries we've been accustomed to the one way flow of migration into the United States; should conditions deteriorate to the levels indicated in your essay--which is hardly beyond reasonable imagination--the flow would most likely shift in the other direction. We're already getting reports of a reverse population shift back into Mexico as recent arrivals from that country return home after encountering poor economic conditions north of the border.Mistakenly, many people think this is a positive development, and one which ultimately will improve our situation.

But the out-migration I'm referring to would be that of an exodus of the productive class, a population shift that will have a far more profound affect on conditions than most of us can imagine. So if the government does move to a system of semi-permanent/permanent welfare for the masses, the environment will become less hospitable for those who are successful tradesman, entrepreneurs, professionals or well monied investors.

We're more vulnerable to this than we can imagine, not the least of which since an increasing percentage of the American productive class do in fact have roots in Mexico, China, India, the Middle East and other developing countries, or are no more than a generation removed, and would have less reservation about heading back should conditions here get really ugly. Eventually, self described "real Americans" may follow suit; Jim Rogers (moved to Singapore with his wife and three daughters) is a prominent example of this.

There's a double-edged motivation for the productive class to leave the country too. Not only will they be expected to largely foot the bill for expanded mega systems here at home, but they are also the very people who would be most welcome in foreign countries, as well as most likely to survive and thrive as new (or reverse) immigrants. Punish-the-rich platforms, which are highly popular in economic downturns, would only hasten and expand the departure.

In the end, it may be far easier for a prosperous person to resettle in a traditionally poor country--which over the generations and through social norms has also found a way to cope with it's diminished prospects in a peaceful way--than to try to wait out an ongoing and increasingly violent devolution in a traditionally richer location.

The potential for an exodus of the prosperous would not only exacerbate our problems, but also reduce options for workable solutions. The result of such an outflow would be a permanently poorer country. 16th century Spain, then the richest country in the world, is a perfect example of this.

The outflow of U.S. productive capacity to developing countries under the banner of globalization is an indication that the trend is already underway. As businesses leave, their most productive and creative employees will eventually choose to go with them. That hasn't happened yet because the money is still in the U.S., but eventually it will always flow to the places where real production is taking place.

Few are aware that England retained it's status as the global financial leader for several generations after America surpassed it as the most productive economy, but eventually the money did follow production--into the United States. Our situation today is looking like a perfect reversal!

There's a saying, "capital is the greatest of all cowards"; what's also overlooked is the fact that a huge, unheralded component of what we call capital, is human capital. What ever ideological repulsion anyone may have toward the concept, the fact is that wealth--capital represented in the form of both money and productive people--follows production. Why anyone in power thinks we can improve our lot simply by propping up the banks should remove any confidence we might have in the leadership.

Regrettably, I have to agree with your projections with a pronounced shift into a full blown welfare state since it is the most expedient course of action from a political standpoint. However we will not succeed in solving any of our problems until we initiate a serious move toward returning this country to that of a producer nation, what ever the short term costs. The geniuses in Washington had better invest some intellectual and political capital into figuring out how they plan to make this happen. To date however, we have no indication what ever that such a course is even being considered.

Thank you, Kevin, for raising these critical issues. One of the most relevant texts on this topic (IMO) is John Kenneth Galbraith's The Nature of Mass Poverty (1979) in which Galbraith identifies a number of causes for sustained mass poverty. (This links to a new edition; you can also find used copies online or borrow it from your library, if they own a copy.)

While I hesitate to summarize this short book, two key points relate directly to poverty and the migration of talent/human capital:

1. Galbraith observed that people accommodate to poverty as it is easier to endure it than to pull up stakes and move elsewhere. It is a trusim of human nature that we adapt rather quickly to conditions, even wretched ones like prison camps and war. Thus it is no stretch to recognize that the vast majority of humanity wakes up thinking "this is the way it is" and goes about their routine without pondering the possibilities offered elsewhere.

2. Galbraith concluded that the only way residents of endemically poor areas can better themselves is to move to a place with better opportunities. This is a rather harsh rejection of "development projects" in underdeveloped areas; mass poverty has roots in culture, climate and so much else which cannot be leveraged by an application of "know-how" and investment.

Everyone who has ever immigrated to the U.S. or other relatively open economies reached the same conclusion and voted with their feet. And indeed, as Kevin pointed out, the news is now full of stories of highly educated and experienced Indian and Chinese immigrants leaving the U.S. and returning to their homelands to pursue better opportunities.

One key point which is often overlooked is the value created by an open culture. Though I have lived only in Hawaii and California, I have visited a number of European and Asian countries for extended stays, and we have been blessed with friendships with talented people from dozens of nations, from Turkey to Thailand. These enduring friendships have opened windows onto cultures which a mere tourist visit can never open.

Thus it is from my own experience that I can say that the culture in L.A. and Northern California (Silicon Valley and San Francisco) is quite different from anywhere else in the world that I know of or have heard of directly. Many places aspire to be "the next Silicon Valley" but they aren't and will never be because they lack what can only be described as a culture unfettered by the past and the chains of traditional typecasting.

Google started in Silicon Valley because it had to. Put another way, there was no other place on the planet with the necessary combination of ingredients. I know this flies in the face of all the hopeful "we're gonna be the next Silicon Valley" projects around the world, but it isn't that easy to get the mix right. It's like throwing a bunch of amino acids in a jar with some other common elements; in one jar life springs up and in the rest you have mud.

Here's the thing: nobody cares where you come from or what credentials you have (unless you're applying to Stanford or UC Berkeley). And I mean this literally: nobody cares. What matters is: what fire you have inside, what you're trying to do, what ideas you have which inspire others, etc. Your religion, gender, ethnicity--yes, these matter because humans care about these things, but in L.A. and the Valley they matter much less.

In many other places in the world, your caste or your class or your accent or your education or your religion typecast you instantly and forever. This is simply not the case in places which attract talent and capital.

I am a resident of the San Francisco Bay Area, and so I have to be careful not to sound like some local booster. But I have been involved in a technology startup based in Virginia in the go-go years of the late 90s, and the founder eventually gave up trying to raise capital and make connections on the East Coast and reluctantly traveled to Silicon Valley. In a way, resistance was futile.

Residents of Austin and Charlotte and other high-tech centers in the U.S. and Canada have much to be proud of and they've built great things. They have learned that it's the openness of the culture which ultimately acts as a magnet to talent and capital, not a fancy business park or tax credits. Yes, you need an open network of government grants and protection of intellectual property, a robust university research system and private venture capital: but you also need that magic liberty to act as a free individual, too.

I have read stories of Indian-Americans returning to India to live in gated suburbs with maids and swimming pools, communities that look like they were airlifted from California or Texas or Arizona or Florida. Similar compounds can be found ringing Shanghai and Beijing. But you can't airlift in an open culture, a respect for intellectual property rights, a culture where you don't need to bribe an endless line of officials to get something done, etc.

We in the U.S. have to be careful not to load the scales of risk and return such that all the natural advantages we offer in the way of openness, access to education, capital and other talent are outweighed by burdensome taxes and junk fees and absurd, essentially meaningless regulations imposed by overlapping state jurisdictions, each anxious to expand their fiefdoms.

This over-reach by the state (meaning all levels of government) can surely kill prosperity and opportunity by strangling it at every turn with more junk fees, more taxes and more misguided regulations.

It's not news that California, L.A. and Silicon Valley included, are in deep fiscal trouble. These difficulties, if handled incompetently, could destroy the very culture which spawns wealth and innovation by attracting talent and capital.

I am afraid the political leaders of California, and perhaps the U.S. as a whole, foolishly believe they can over-tax and over-regulate the economy to health; they have it exactly backward, and all of us will suffer the impoverishment created by their slavery to special interests fattened by taxes and their blatant ignorance and stupidity.

They all claim to be acting to "save the poor" with every tax increase and every new layer of costly regulation, but the net result of their over-reach will be to create an enduring poverty.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath. NOTE: The serialization of my new ebook "Survival +" starts March 21. Of Two Minds reader forum (hosted offsite, reader moderated) New Operation SERF Installment:Operation SERF, Part 12Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes. Thank you, Alan H. ($50) for your stupendous generosity to this site. I am greatly honored by your support and readership.

Tuesday, March 17, 2009

The Return of Big Government and the (de facto) Welfare StateMarch 17, 2009

Bill Clinton famously declared the end of big government and "ended welfare." Now as the U.S. economy rumbles down the path to Depression, the return of Big Government will be followed by a new de facto Welfare State.

The Return of Big Government is not exactly news. As one region after another in the U.S. slouches toward either Recession or Depression, the only Sugar Daddy capable of printing money and spreading it far and wide is Big Government. Nominally "small government" governors and mayors are scrambling over one another to get their share of the largesse, and of course the befouled financial sector continues its stupendous siphoning of Federal swag as well.

All hail the return of Big Government (as long as I get my share).

But while Big Finance and local governments are gorging at the trough, precious little is being said about the millions of unemployed scraping by on unemployment insurance scheduled to end, and the millions more who face layoffs as the economy spirals down.

Record 31.8 million on food stamps: Government shows increase of 700,000 food stamp recipients in a single month. Last summer food stamps were renamed the Supplemental Nutrition Assistance Program, or SNAP.The average food stamp benefit is $115 a month for individuals and $255 a month per household.Enrollment for food stamps in December was up 2.2% from the previous month with increases in all but three states. Ohio had the largest increase among large states, up 3.4%, to 1.26 million people. Texas had the largest enrollment, 3.05 million, up 1.8%.The previous record for food stamp enrollment was 31.6 million last September, which included "disaster" stamps for states hit by hurricanes and floods.In April, food stamp benefits will increase temporarily by 13% under provisions of the recently enacted economic stimulus law. Ellen Vollenger of the Food Research and Action Center said some families will see increases of $80 a month.

If there are no jobs to be had, then how are these millions of households expected to get by? As correspondent Richard Metzger and I have discussed over the past few months, is there really any option to a de facto welfare state?

In a society based on free expression and high expectations, is it really plausible to expect millions, if not tens of millions, of unemployed to slink off into a hopeless, quiet poverty? The MSM propaganda machine is already ceaselessly pumping out stories about how the "recovery" will begin in 2010; but they never answer the key question: "based on what?"

The vagueness of the "recovery" talk is the giveaway: there is no basis for a recovery of the job market. Yes, stocks might rise as companies slash payroll and overhead enough to return to profitability, but the self-reinforcing cycle of less borrowing, more debt renunciation/paydown, drastically lower income and sales taxes, further declines in the housing market, etc. all suggest there is simply no rational basis for the MSM's expectation that a new credit-housing bubble will create millions of new jobs in 2010.

By early next year, all the current unemployment extensions will have expired. By early next year, the Federal government's ability to borrow another $800 billion at low interest rates to fund 3 million jobs will be gone; paying $100,000 or more per job is simply unaffordable. These realities will leave us and policy makers no alternative to a much cheaper social safety net.

As of March, approximately 5.3 million people are drawing unemployment benefits ( Record number of Americans on unemployment) and virtually no one claims this is the bottom of the recession. Given that there are about 133 million formal jobs in the U.S., it's plausible to estimate another 5 million wage earners will be laid off. As monthly layoffs hit 700,000, it won't take many months to reach 10 million officially unemployed and millons more officially "discouraged" or "underemployed" workers.

Here's how de facto welfare might work. Let's say 10 million people will soon be collecting unemployment benefits. This is not "welfare," as the funds in the state coffers were paid by employers. But these state coffers are being drawn down to zero, which means Federal money will be needed to pay the unemployment benefits to those who can't find work.Currently, unemployment benefits last six months; they've been extended in various states for obvious reasons.

But what happens when the extension runs out? It's not like the economy is capable of creating 10 million jobs in the next six months. With the credit and housing bubbles irrevocably popped, it s difficult to see how the economy can generate 10 million jobs over the next six years, never mind six months.

The possibility that few are willing to discuss is that 20+ million workers will be unemployed for years, not months. As the Bob Marley song has it, "a hungry mob is an angry mob," and while food stamps, oops, excuse me SNAP script, will buy a goodly amount of real food (that is, not frozen pizza, potato chips, etc. but broccoli, bread, milk, etc.) they won't pay the rent.

Maybe my math is off, but it seems that paying 10 million laid-off workers $10,000 each a year works out to a mere $100 billion--chump change when you consider TARP, TARF, BARF and all the other financial sector bailouts/loans. (OK, BARF was a joke, but just barely.) The point is that paying 20 million unemployed people with slim-to-none chances of finding another job $800 a month in unemployment (roughly $10,000 a year) works out to $200 billion a year--far cheaper than the $787 billion "stimulis bill" which is supposed to save or create a paltry 3 million jobs.

Is extending unemployment benefits indefinitely "welfare"? I would say it is a de facto "social safety net" because if people can't find jobs and have no money, that's the foundation for anger, desperation and some flavor of insurrection, be it at the ballot box or the streets.

When you ponder an annual Federal deficit of $2 trillion, then $200 billion-- a mere 10% of the total deficit--seems like a real bargain to keep 20 million wage earners in some kind of shelter.The other key to avoiding insurrection is to fully legalize marijuana and control it in the exact same fashion as tobacco is controlled. A crowd of stoners is not motivated or interested in rioting, while a drunken mob is positively primed to riot. If we want to minimize the risk of large-scale urban mayhem, the two most important steps we as a nation can take are:

2. Extend unemployment benefits indefinitely, until the job market can absorb the 20 million unemployed. (Please check back in 2012, 2015, and 2022.)

In past recessions, I received unemployment when laid off; when I was an employer, I paid thousands of dollars every year into the U.I. fund. It is a system which "works" during most recessions. But this is a Depression, and we need to think through solutions to mass semi-permanent unemployment. In the Great Depression, "relief" to families started as a box of basic foodstuffs; eventually this was replaced by a small cash stipend.

You can see the connection between today's subject and last week's topic of urban vs. suburban safety. Longtime correspondent Albert T. (who resides in New York City) and I have exchanged emails on these issues; here are his thought-provoking comments:

I am partially with you on the viability of some cities being safer then some suburbs. However, once the wonderful public pensions elephant hits the fan in most places the cities with the most aggressive bureaucracies trying to hunt for the last dollar standing will drive out the economic market makers in their prospective areas. Some cities will of course stoically/honorably go bankrupt and wipe out pension obligations or transfer them to PBGC which will minimize them, thus delivering themselves from the burden. If the bureaucracies get too aggressive hunting the dollars that are still available in pockets of pockets of their constituency those cities will probably become warzones ones all economic life is destroyed. The shelves will be empty and the people will be hungry.

We must also take into account that wherever economic activity persists people from areas where nothing is happening will go and do any job for the sake of survival. Thus, any city that is viable by virtue of the presence of capital and entrepreneurial spirit will attract emigrants/immigrants from depressed areas to the point of excess. Desperation breeds contempt and no amount of eyes on the street will prevent crime, violence, etc... even amidst the brightness of a sunny day.

People will wait next to a check cashing place for people to come out and follow them to rob them or do it right outside. Pensioners in Russia got their money from the postal carrier (at least my grandma did) so they wouldn't have to be exposed with the whole sum on the street since they would be easy prey if they were seen getting out of a bank or a post office. A lot of things you thought people would never do they will, and even if cops catch some others will be even bolder.

I still think it is far better to be on the sidelines (ergo a small farm next to a city outside the taxing reach of the bureaucracy) than in the cauldron. The problems will never be uniform, in some places they will be worse in others better, but on the whole the ability to grow your own food and be in a sparsely populated area where people of desperate means won't be because they will be trying to either compete in cities or get help from city agencies.

The main problem is psychological. I agree that a lot of entitlement issues will come up, and my guess will wither away once people hit the bottom and go into survival mode. The problem is what kind of "survival mode" they will go into. I am not encouraged to believe in honorable accommodation in the time of necessity.

(People in a crowd or a Mob always feel whatever they do is justified by the exuberance of their emotion as they regress into a mindless beast fueled by emotion. *paraphrasing I am sure this was read somewhere. So far we had no real protests over unemployment urging the gov't to do yet more stuff that will harm us. My guess is once cops get overzealous at stopping petty crime like store thefts they will shoot instead of do their job and stop the criminal. This will most likely set off the powder keg events.)Cleveland eviction riots below: Cleveland eviction riot of 1933 bears similarities to current woes.My biggest fear is if food prices go up during this depression which is possible, while all the other things go down. This will create food riots and complete disintegration of society. 1931 February entry:{February -- "Food riots" begin to break out in parts of the U.S. In Minneapolis, several hundred men and women smashed the windows of a grocery market and made off with fruit, canned goods, bacon, and ham. One of the store's owners pulled out a gun to stop the looters, but was leapt upon and had his arm broken. The "riot" was brought under control by 100 policemen. Seven people were arrested. Albert added these comments after I suggested food stamps and unemployment would provide a social safety net:

The problem is that foodstamps will buy you nothing other than bread and maybe milk. In Russia people were paid similar wages but those who had access to food or tradable goods did better because you either got part of those as wages or they got stolen and traded.

People in Russia never attacked stores (was no point to do so since either they were empty or you had to get in line and wait for hours). No one is insane enough to try to rob a store with a mob queued outside. Usually you could get stuff outback for bribes, but that was accepted.

Welfare states are temporary because it implies division of produce through rationalization. Once you do not have enough things produced and shortages occur, no amount of government redistribution will work. It won't make sense for a baker to bake more than he can trade so that the gov't doesn't appropriate for those that produce nothing. If gov't tries violence or coercion this will only make the shortages worse.

The most dangerous thing the gov't can do is impose export tarrifs on foodstuffs. Best case is Argentina at this point. With food shortages in a country that is a major food exporter. If farmers are devastated in an attempt to manage prices there wont be food whose prices will be managed.Food shortages worsen amid Argentine farm strike (June 2008)There is a shortage of a lot of foods like milk and dairy-based products, of which there are practically none," Yolanda Durin, the head of an association of small grocery stores in Buenos Aires, told a local radio station. "There's no chicken ... and there is a shortage of flour and cooking oil," she said. I highly recommend this article:Catastrophic Fall in 2009 Global Food Production (Global Research)

Correspondent Ishabaka, M.D. checked in with these interesting comments on living in a small rural town, the acme of survivability in many minds:

After having lived in a city with multiple riots, that was once under martial law (sandbagged machine gun nests on every major city intersection!), I'll tell you where I'd like to be in case of T.E.O.T.W.A.W.K.I.- small town in the northwest.- I spent some time as the only doc in a small town in central Montana. First - everyone knew EVERYONE (and everyone's vehicles). A stranger was IMMEDIATELY noticed. This doesn't happen in a city. More likely in a suburb, but all you need is a van with a "cable TV installation" sticker or whatever.- because of the above, everyone looked out for and trusted everyone - nobody locked their car or house doors - this was in the 1990's!- every home was armed - and not with .22's either, with scoped elk rifles - these fire magnum rifle bullets, FAR more powerful than the 5.56mm rounds our current military AR-14 series of weapons use. These rifles will shoot through ALL ballistic vests, and some light armor. Dynamite is readily available, for blowing stumps, rocks in fields, and a few one-man gold mines.- because the place got snowed in and lost power regularly every winter, every house was stocked for an emergency. Everyone owned a 4 wheel drive vehicle because they NEEDED them. Everybody had CB radio and many had ham radio as well.- finally - when you're the only doc in a 75 mile radius, people take GOOD CARE OF YOU!- the city was Montreal, Canada - under martial law under Prime Minister Pierre Trudeau when the terrorists of the Federation Pour Le Liberation Du Quebec kidnapped two cabinet ministers, killing one, and went on a terror bombing spree.- also spent some time in Atikokan, Ontario - 5,000 person mining/timber town in northeast Ontario, Canada, nearest major medical center 100 miles away - same deal.One thing about living in the city - you ARE exposed, at least occasionally, to violence, drug dealers, hookers, and other dangerous folks so you stay AWARE. People in the suburbs have blinders on. I almost stayed in central Montana, it's a long story. I was literally treated like a king. Their only doctor had died. The nearest one was 75 miles away, which was eternity when they were snowed in. A very wealthy rancher woman in her 90's had donated millions of dollars to build a beautiful, state of the art doctor's office, 12 bed hospital and 24 bed nursing home, all in one facility, so no driving. Right behind the hospital there was a bluff overlooking a huge valley with the Rockies in the background - I saw a herd of I believe 144 antelope - the rancher who owned it offered to give me the land to build a house on - it was no good for grazing - I could have walked to the hospital in 2 minutes - even in a blizzard.

This was around '95. The cost to have a VERY nice house built would have been 60-80k. A four wheel drive vehicle, a snow machine, and I'd have been set.

Interestingly enough Montana has the highest suicide rate in the U.S. Someone even mentions suicide you hospitalize them - involuntarily if need be. I met a nice guy there with a nice 14-year old son, - a month after I left the son blew his head off with a rifle because he crashed his dad's pickup. The downside to every home owning a powerful gun. One miner sat on a case of dynamite, drank a bottle of whiskey, smoked a cigar, then dropped the lit cigar into the case of dynamite....

Thank you, Albert and Ishabaka, for these thoughtful commentaries.

Note new recipe and Operation SERF installment posted below.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath. NOTE: The serialization of my new ebook "Survival +" starts March 21. Of Two Minds reader forum (hosted offsite, reader moderated) New Operation SERF Installment:Operation SERF, Part 12Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes. Thank you, Scott C. ($60) for your outrageous generosity and special tokens of appreciation from your active duty in the Pacific theater. I am greatly honored by your support and readership.

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